Finance Minister Confesses

Rising fiscal deficit disturbing: Reserve Bank of India governor D Subbarao

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Agencies | Apr 16, 2012, 05.16AM IST

NEW DELHI: Reserve Bank of India governor D Subbarao has said that rising fiscal deficit and short-term debt levels are "quite disturbing" but the nation is not facing a repeat of a 1991 balance of payment crisis. While the 1991 crisis was triggered by high oil prices almost drying foreign reserves and currency crash, large fiscal deficit and current account deficit are lead indicators of stress building up in the system again, he said at a panel discussion on India's economic reforms and development here on Saturday evening.

With Prime Minister Manmohan Singh listening, Subbarao said fiscal deficit in 1991 was 7% and it is ruling at 5.9% in 2012. The current account deficit at 3.6% is higher than 1991 figure and short-term debt at 23.3% of GDP in 2012 is much more than 10.2% in 1991.

"That is quite a disturbing picture. Nevertheless, I would still argue that in 1991, an implosion was imminent. In 2012, an implosion is not imminent," he said. 

Stating that the structure of the economy has changed in fundamental ways, he said financial markets are more matured, more diverse and much deeper and have "resilience to absorb shocks". "Our regulatory systems and out crisis response mechanism are more robust and more sophisticated," he added.

While fiscal deficit was not entirely structural in nature, current account deficit was high because of high oil prices and gold imports, he said adding India's foreign exchange reserves today are much larger than those in 1991.

"I am not saying that we have insulated ourselves from all crises for all times (or that) the economy is in pink of health or on a roll (or that) today's macroeconomic situation is not a cause for concern. On the contrary, there are serious concerns about macroeconomic management, policy environment and governance".

Singh, who received a compilation of essays written by leading economists, did not make any formal comment at the discussion except to state that the economy was facing "difficulties", but expressed the hope that they would be overcome with determination. Stating that India growth story was intact, Subbarao said, "We should prove that the current downturn is just a short-term phenomenon, and that the long-term growth drivers will come back into play."

He emphasised that "2012 is not 1991 all over again", but serious concerns are there and a number of things need to be done keeping the big picture in view. HeIndia's economic growth during 2011-12 slipped to three-year low of 6.9%, down from 8.4% in the preceding two years. The government expects the GDP to expand by 7.6% in the current fiscal.

Subbarao, who will be unveiling the annual credit policy on April 17, had met the PM and finance minister Pranab Mukherjee to discuss the country's macro-economic situation earlier in the day. He may have discussed the steps to be announced in annual credit policy to arrest declining growth.

The government proposes to bring down the fiscal deficit to 5.1% of the Gross Domestic Product in the current fiscal from 5.9% last year.

"Imports of gold were high because under the present scenario gold is safe haven."

A nice and praise worthy article 

by Rajesh Goyal Executive Consultant, 

collected from www.allbankingsolutions.com

CONFESSIONS OF FINANCE MINISTRY - BANKS ARE OVER STATING PROFIT - Fraud by CMDs and EDs of PS Banks for higher incentives and new elevations?
 

 by
 

Rajesh Goyal, Executive Consultant
 

On 16th February, 2012, a report hit the headlines "Finance Ministry Asks PS Banks Not to Overstate Profits". Reading this headline, I felt surprised and shocked. It sent contradictory feelings - why I felt surprised when I was aware of this all along. Why was it shocking when we have discussed this issue in detail in these columns on number of occasions? Before I explain as to why I felt surprised and shocking, let us see just one line extracts of the report, which will speak volumes about the state of affairs of our PS Banks, Finance Ministry and RBI :-

 

The letter to heads of PS banks said "instances of over reporting of profits have been continuing year after year and no corrective actions seem to have been taken to stop the recurrence". It further asks PS banks to provide adequate provisions for bad loans.

 
The inferences of the above statement are clearly as follows :-
 

(a) PS Banks have been overstating the profits year after year;

(b) Finance Ministry and RBI are well aware of the fact that PS Banks are overstating profit

We all know that in Banking parlance, when a Manager tries to inflate his deposits / advances by discounting some cheques or bring temporary business, he is liable to be charge sheeted for Window Dressing? Now question arises if EDs and CMDs decide to inflate the profits of the banks, is it merelyWindow Dressing or a Fraud There is no doubt that it is a fraud using the accounting methods and rolling out higher dividends to Government of India (Finance Minister keeps on demanding from PS Banks higher profits from time to time). It is a method of siphoning of money and weakening of the banks. What are the motives for over-stating the profits? Nobody will do something wrong without any motive ?

Now question arises that if Finance Ministry, RBI and other agencies of the GOI were aware of the fact that profits are being overstated, then :-

  (i) What action has been taken by them in recent years to stop this fraud with the public and shareholders?

  (ii) Who are the people who were responsible for overstating of profits year after year? How many of them have ever been punished for this kind of fraud? We can find many instances of Managers being charge sheeted for Window Dressing, but is there a single instance where any CMD or ED has been censored for doing this?

  (iii) Why Mr K C Chakrabarty, Deputy Governor of RBI in the last week issued a statement that there is nothing to worry about NPA figures? He even claimed that stress test in the Financial Stability Report has been done and we don't have anything to worry about this. The advisory of Finance Ministry runs totally counter to DG's statement. Does Governor concurs with the statement of Mr Chakrabarty or he concurs with the advisory of Finance Ministry. Mr Chakrabarty had been CMD of two largest nationalized banks before he was appointed as DG at RBI. Therefore, he is one among the few who knows all the intricacies as to how the Balance Sheets of the banks are inflated. By stating that there is nothing to worry - to whom he is trying to befool ? It appears that he was trying to befool common man as Finance Ministry is well aware these facts. The statement runs counter to his love for Financial Inclusion which is meant for common man.

Thus, I can say the contents of the report were neither surprising nor shocking for me. But what was surprising and shocking is that such an admission has been made by Finance Ministry. They have admitted that PS Banks have been doing this fraud (Some CMDs and EDs must have earned those extra bucks as performance incentives and / or promotions for their performance which was based on fraud ) for years together and Ministry is well aware of this.

 

The above indicates that something really serious is worrying GOI and soon PS Banks may show up much higher NPA levels. It appears the process to cover up themselves has been initiated by Finance Ministry officials. If anything goes wrong in near future, these officials will say "they said so" and fore-warned the banks and RBI. Bank CMDs will take the plea that they are being audited by the teams of RBI and DG of RBI (Mr Chakrabarty) has clearly stated that there is nothing to worry and thus they have not committed anything wrong. Finally, as it always happen, RBI Governor and his team of Deputy Governors will also go scot free as nobody dares to touch the regulators and king is never wrong. 
 

Thus, in the end the poor man's money will go to drains but nobody will be touched. Long Live babus of Finance Ministry, Deputy Governors of RBI and CMDs of PS Banks.

CBI Director has recently admitted that a sum of 

Rs.24,50,000,00,00,000

has been stashed abroad. 

 

But nobody has been punished for allowing siphoning of such huge money in last six decades. Even now CBI is not thinking of finding as to who allowed such siphoning of poor man's funds. Moreover, CBI is openly admitting that they cannot bring this money back.

 

We Indians only know how to punish Common Man and Not the Top Bosses.   Similarly, an incumbent of a rural branch in Scale I or II will be charge sheeted for window dressing, but EDs, CMDs, Deputy Governors will always go scot free even if bank has overstated profits again and again. Why nobody questions about the motives of over-stating the profits? Classification of top accounts in NPA or standard category is done at Head Office with the approval of GMs, EDs and CMDs and Board. Then in such cases, who needs to be charge sheeted, if Finance Ministry admits that PS Banks have been overstating the profits year after year.
 
 

Let the bankers ponder upon these and raise voice against such malpractices. We are trying through the columns of www.allbankingsolutions.com to bring transparency, as far as possible, in the banking sector. We will continue to educate bankers and general public in this regard.

Looming Crisis - NPA - Can Indian Banks Go Bust ?

by

Rajesh Goyal

On many occasions in recent times, AllBankingSolutions has taken up the issue of ever increasing NPAs and the role played by the top management in hiding the NPA in last one decade.   Mr D. Jain, regular contributor to our website has also been doing his best to bring this issue into focus.   However, it appeared that everyone (right from Bank CMDs, EDs to DGs of RBI, Finance Ministry officials) waschanting ...'all is well'.   We small people were brushed aside as  negative and pessimistic.

As late as January 2012, even Dr K C Chakrabarty, Deputy Governor of RBI, has boasted that there is nothing to worry about NPAs in Indian banking industry.  I personally was not convinced.  I still keep wondering how come such a seasoned banker, who knows in and outs of at least two biggest nationalised banks (he was CMD of PNB and BOB) can issue such a statement when NPA crisis is around the corner.   Dr Sahib, this is the time when you do not have to hide behind smoke screens, but have to take the challenge head on.

In my article "CONFESSIONS OF FINANCE MINISTRY - BANKS ARE OVER STATING PROFIT - Fraud by CMDs and EDs of PS Banks for higher incentives and new elevations?", we wrote as follows:-

".......... The above indicates that something really serious is worrying GOI and soon PS Banks may show up much higher NPA levels. It appears the process to cover up themselves has been initiated by Finance Ministry officials. If anything goes wrong in near future, these officials will say "they said so" and fore-warned the banks and RBI. Bank CMDs will take the plea that they are being audited by the teams of RBI and DG of RBI (Mr Chakrabarty ) has clearly stated that there is nothing to worry and thus they have not committed anything wrong. Finally, as it always happen, RBI Governor and his team of Deputy Governors will also go scot free as nobody dares to touch the regulators and king is never wrong".

Now it appears the cat is out of the bag.   Today a report under the caption "Intelligence Bureau warns of rise of bad loans in Indian banks" has appeared in the media.   What we have predicted last week has come true and it is clear that finance ministry officials have issued the statement 'banks are over stating profits' purely to cover themselves of this bombshell.

The report indicates that the Intelligence Bureau (IB) has in a letter to Prime Minister Manmohan Singh warned that the proportion of bad loans on the books of Indian banks could jump from five per cent to 10 per cent of their total loans in the next 12 months mainly on account of "restructured" loans.

Now question arises whether the IB had been fair in its judgment of 10% or this is also a gross underestimate.  

Role of RBI in this whole affair will be under scanner as it has not only given leverage in restructuring of loans but has also been dilly dallying in shifting to the system driven classification of NPAs.    Moreover, till date we have to hear any action against a CMD or ED for over stating the profits or wrong classification of NPAs.   Does RBI have not powers to censure CMDs and EDs for wrong preparation of balance sheets.

Let us wait, how things will take shape in next few months ?  We will watch the new methods adopted to cover up the whole issue for the present.   RBI and Finance Ministry are allowing more and more air to be filled up in the NPA balloon.   Can it bust in near future itself ? 

Lets pray to God, good senses will prevail and some air will be released by initiating action against top brass